Question

following is the extract of balance sheet of sun , star and moon
liabilities
investment fluctuation reserve 15000
Assets
Investments 200000
sun took investment costing rs 100000 at market value of rs 90000 and remaining investment are valued at market value pass journal entries with solution
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Answer 1

Answer:

Investment fluctuation reserve is created as a provision for any change in the market value of investments. Its a reserve appearing in the balance sheet on the date of admission and it needs to be distributed among the old partners in their profit sharing ratio.

Investments market value=1,10,000

Investment value appearing in balance sheet= 1,20,000

Difference is 10,000 which is to be adjusted from the investment fluctuation reserve account.

The journal entry for this is:-

Investment fluctuation reserve A/c Dr 10,000

To Investments A/c 10,000

Now the balance reserve i.e 14,000 (24,000-10,000) is to be distributed among the partners X and Y. As the question is silent on the ratio of profit sharing, we will assume it to be equal. So, the entry will be:-

Investment fluctuation reserve A/c Dr 14,000

To X's capital A/c 7,000

To Y's capital A/c 7,000

A combined entry for this is:-

Investment fluctuation reserve A/c Dr 24,000

To Investments A/c 10,000

To X's capital A/c 7,000

To Y's capital A/c 7,000